Labour Shortages Underpin High Construction Costs in Hong Kong

Arcadis’ International Construction Costs Index names Hong Kong as the most expensive city in Asia for construction, marred by labour shortages and rapid inflation warnings

Hong Kong has been named as the most expensive Asian city to build in, according to the International Construction Costs Index published today by Arcadis. Hong Kong trails behind New York and London, the top two most expensive cities in the global ranking.

The annual Arcadis Index, which analyses the relative cost of construction across 44 major cities, finds that strong currency performance and significant resource constraints have seen these ‘world city’ locations command premiums of up to 60 percent compared with many European locations.

However, this price inflation comes at a cost, with the viability of important commercial and public sector schemes put at risk in these cities as prices continue to soar. Furthermore, rising costs and the falling value of currencies could restrict demand from emerging market investors in these areas, potentially triggering a shift in interest to lower-cost cities in the long term.

Meanwhile, throughout 2015, every construction market worldwide saw overall cost inflation restricted due to the drop in commodity prices. Particularly with oil, growing uncertainty over prices will have a long-term impact on the global construction industry.

Alan Hearn, Head of Buildings Solutions, Asia, commented: “When it comes to development, the world’s major financial centres have always commanded a substantial premium. However, the sheer scale of demand-driven price increases this year in the likes of New York, London and Hong Kong has been remarkable. Add to this the recent global currency shifts and it is plain to see why building in these locations can cost up to sixty percent more than many European cities. The problem is that rapid inflation may soon see investors and even public sector bodies shut out as prices continue to spiral.”

The Asian cities ranking in Arcadis’ International Construction Costs Index are below:

Hearn continued: “Despite worries about overheating, the Hong Kong residential market has remained in check, while the office market is also in good health, with high levels of demand and rising rents coinciding with a healthy development pipeline.

“Looking forward, Hong Kong’s two challenges are the constraints of an ageing and shrinking workforce, where 30 percent are aged over 55, and risks associated with a slowdown in mainland China.

“For Asia, China’s economic slowdown and weakening demand in many cities, including Singapore and Jakarta, mean that growth in the region is expected to ease as we enter 2016.”